The five phases of retirement – a review

Heather Bell is a Business Development Manager of Just Retirement Life (South Africa). Picture supplied.

Heather Bell is a Business Development Manager of Just Retirement Life (South Africa). Picture supplied.

Published Nov 17, 2023


By Heather Bell

This is the final article in a series on planning for retirement, focusing on the different phases of this important chapter of life. The first article looked at pre-retirement planning considerations, the second looked at navigating the transition phase of retirement, and the third explored the active or ‘go-go’ phase. In the fourth article, we looked at the passive phase of retirement, and the fifth article covered the late retirement phase and the often opposing goals of having a lasting income and leaving a legacy. In this article, we provide a holistic review of the five phases of the retirement journey and some of the important takeaways from each.

Retirement is a significant milestone that requires careful planning and preparation, preferably throughout your working years. Achieving a comfortable retirement requires informed decision making. And the earlier you start, the better.

Phase one – pre-retirement

In the last 5-10 years of your working life, it is crucial to start thinking about your goals for your golden years and taking proactive steps to ensure a financially secure future. A good exercise is to create a vision for your retirement and how you can make your money work for you in the most sustainable way so that you can enjoy peace of mind when you finally retire. Where would you like to live, which hobbies would you like to pursue, or which meaningful experiences would you like to have? These are all questions to consider.

Phase two – the transition phase

In this phase you are transitioning from the daily grind into retirement, and the relaxation that should accompany it. This can be both exciting and overwhelming, however. During this period, you will face crucial decisions with a lasting impact on your financial well-being. One of these is how you will invest your life savings to ensure you have a sustainable income in retirement. Retirement legislation requires that at least two thirds of your formal retirement savings from a pension fund or a retirement annuity must purchase an income-generating product – either a life annuity, a living annuity, or a blended annuity.

If you haven’t already done so, we recommend you engage the services of a financial adviser. They have the tools to help you assess your current financial situation and advise you on which annuity product is best for you to support the lifestyle you desire.

Phase three – the active phase

Today, more and more retirees are embracing an active lifestyle that involves staying physically fit, mentally stimulated, and socially connected. By this point, you’ve most likely bought your pension (in the form of a life annuity, a living annuity, or a blend of both) and you’re testing out your new financial reality.

While the standard wisdom is that you’ll only need around 75% of your pre-retirement income per month once you retire, this might not hold true during the active phase. It can be expensive to fund your travel dreams and new hobbies, and you might need to plan for giving yourself a bit more leeway in this phase, which can last anywhere up to (and maybe beyond) the first ten years of your retirement.

Phase four – the passive phase

In this phase, you’re probably slowing down a little, and spending less on travel, hobbies, and new experiences. Unfortunately, this is also the time when medical expenses can start to mount. If you invested in a living annuity when you retired, staying on top of how much you are withdrawing each month is crucial. If you were a 65-year-old male when you retired, research says the most you should draw from your capital is 5,5% a year. The figure for a 65-year-old female is 5% a year as women tend to live longer.

Phase five – late retirement

Once you’re in late retirement you might think about leaving a legacy. However, having an income that lasts and leaving a legacy are often opposing ideas. Self-care is not just a matter of looking after yourself physically, mentally, and emotionally. It also means looking after yourself financially. Some people decide to switch from a living annuity to a life annuity in this phase so that they can enjoy a guaranteed monthly income for the rest of their lives. As you’re already in your late phase of retirement, you could enjoy a good deal!

The actions you take today, and how you continually manage those decisions in retirement to ensure you don’t end up outliving your income, particularly in the late phase of retirement, are important and ideally should be discussed with a financial adviser.

A handy booklet has been compiled of all the retirement articles by various authors from Just Retirement Life (South Africa) that were published by Business Report from May to October 2023. It can serve as a guide for people navigating their retirement. The booklet link is:

* Heather Bell is a Business Development Manager of Just Retirement Life (South Africa); [email protected].